Contractor Expense Forecasting: 7 Essential Tips for Building Accurate Models

Written by CFI Team

Reviewed by Jeff Schmidt

Read Time 6 minutes

Forecasting Contractor Expenses: Why It Matters in FP&A

Accurate contractor expense forecasting prevents costly surprises like unexpected overruns that disrupt budgets and negatively affect your organization’s financial health.

FP&A teams forecast contractor expenses to:

Control costs: Evaluate if contractor rates justify using external resources instead of hiring full-time.
Plan cash flow: Project-based or variable contractor payments can complicate budgeting if not accurately forecast.
Support flexible staffing: Contractors help companies scale quickly without long-term obligations.
Enable precise project tracking: Contractor costs are directly linked to projects, useful for project-based budgeting and variance analysis.

As an FP&A professional, you’re responsible for efficiently managing contractor resources by monitoring profitability and cash flow impacts. To help you refine your approach, here are seven practical financial modeling techniques to enhance your forecasting accuracy.

Contractor Expense Forecasting

Key Highlights

Combine NETWORKDAYS with EOMONTH to automatically calculate available contractor workdays, eliminating weekend-counting errors.

Replace complex IF statements with MAX functions for cleaner, more efficient scheduling conflict detection.

Model contractor payment timing using corkscrew structures to accurately capture both accrual expenses and cash flow impacts.

7 Ways to Strengthen Your Contracting Expense Forecasts

These practical financial modeling techniques can help you improve forecast accuracy and gain better insights into both accrual expenses and cash flow impacts. Here are seven proven tips to enhance your contractor expense forecasting process.

1. Calculate Possible Workdays for Accurate Scheduling

In a contractor expense model, you must first determine exactly how many workdays are available in each month. The NETWORKDAYS Function in Excel makes this simple:

Contractor Expense Forecasting - NETWORKDAYS Function

This Excel function efficiently calculates the precise number of business days available each month, excluding weekends automatically.

To determine the start date, use Excel’s EOMONTH Function to find the previous month’s end, then add 1 to reach the first day of the current month.

2. Track Scheduled Days Against Available Days

For each contractor role, create a table to track scheduled days against available workdays. This structure allows you to monitor scheduling efficiency and avoid overbooking.

Set up a section to track days scheduled for each contractor type, such as Strategy Specialists who might only work during specific months. Include the maximum possible workdays in each month as a reference point, giving you a clear picture of capacity utilization.

Conditional formatting in Excel can visually alert you to overscheduling by highlighting scheduling conflicts with colors (for example, turning cells orange).

Source: CFI’s FP&A Professional Contractor Forecasting & Analysis course

3. Create a Scheduling Issue Detection System

When monitoring contractor scheduling, you need a formula that clearly flags scheduling issues. While many modelers might reach for an IF statement, a simpler approach is using Excel’s MAX Function:

MAX Function

This formula displays positive numbers only when there’s an overscheduling issue. It shows zeros when there’s no issue. This creates a clean monitoring system that’s easy to scan and link to dashboard alerts.

With scheduling accuracy now clear, the calculation of accrued contractor expenses becomes straightforward.

4. Calculate Accrued Contractor Expenses

Multiply each contractor’s daily rate by the number of days scheduled in each month:

Daily Rate

If your model presents figures in thousands, dividing by 1000 keeps numbers in the proper scale. These accrued expense figures flow directly to your income statement, accurately reflecting profitability.

Accrued expenses set the foundation; next, accurately model when cash actually leaves your business.

5. Build a Contractor Payables Schedule with Payment Timing

Typically, companies pay contractors each month for work completed the previous month. Accurately modeling this timing difference ensures your cash flow projections are reliable.

Create a corkscrew structure to show balances rolling forward from one period to the next. This clearly shows payable timing over consecutive months, including:

Beginning balance of payables.
Additions (new contractor expenses accrued).
Reductions (payments made).
Ending balance (which becomes next month’s beginning balance).

A corkscrew calculation clearly illustrates both cash outflows timing and payable balances on your balance sheet.

6. Incorporate Fund Flow Direction Checks

Mistakes in fund flow direction are common in financial models. When building your contractor payables section, carefully verify your cash flow impact formulas:

Paying contractors (reducing payables) reflects negative cash flow — cash leaving your company.
Increasing payables (accruing expenses) temporarily reflects positive cash flow since cash remains within the company short-term.

For example, if payables decrease from 82 to 36 (as seen in the example below), this reduction shows a negative cash flow impact. In the next column, if payables increase from 36 to 79, it positively impacts cash flow temporarily.

Fund Flow Direction Checks — Source: CFI’s FP&A Professional Contractor Forecasting & Analysis course

With accurate cash flows established, the final step is integrating these contractor expenses into other business expenses for your income statement.

7. Aggregate Contractor Costs with Other Expenses

Integrate contractor expenses with other Cost of Goods Sold (COGS) components — expenses directly tied to delivering your products or services — for accurate income statements.

Create a clear schedule combining:

Employee costs (salaries, benefits, bonuses).
Contractor expenses.
Other Selling, General & Administrative (SG&A) expenses — indirect costs such as rent, marketing, or accounting.

Clearly adding subtotals and labeled headers makes your model easier to audit and more transparent.

Total Contractor Costs — Source: CFI’s FP&A Professional Contractor Forecasting & Analysis course

Improving Your Contractor Expense Forecasting: Next Steps

Following these seven steps will help you build a robust contractor expense forecast that accurately captures both accrual and cash perspectives. Your improved forecasting model provides valuable insights for effective financial planning, helping your company manage contractor resources efficiently.

Mastering financial models, such as contractor expense forecasts, positions you as an indispensable FP&A professional who delivers the insights business leaders rely on.

For hands-on experience building robust contractor forecasting models, CFI’s FP&A Professional Contractor Forecasting & Analysis course is an ideal next step. This course also fulfills a requirement for a comprehensive FP&A specialization program!

Ready to advance your FP&A skills? Take your financial models to the next level with CFI’s FP&A Specialization. This comprehensive program prepares you to support business leaders with top-tier budgets, forecasts, and analysis techniques used by finance teams at Amazon, JPMorgan, and PwC.

Earn Your Specialization!